RE-EVALUATING SOCIAL SECURITY'S BOOTY

Stephen ChapmanCHICAGO TRIBUNE

Social Security is a prime example of the excesses of the modern welfare state--a program that has promised so much to so many that it can't possibly deliver. Now the day of reckoning is at hand. But hard-core defenders are practicing a clever form of jujitsu, hoping to turn this failure into a grand victory for Big Government.

A generation ago, economist Milton Friedman and a few other mavericks suggested that Americans be allowed to invest their Social Security "contributions" in private annuities instead of throwing them into a mythical government trust fund. They were generally dismissed as the crackpot offspring of Herbert Hoover. But today, even liberals can't deny that Social Security is shaping up to be the biggest rip-off of the 21st Century.

The growth of mutual funds and the ever-rising stock market have educated millions of people that there is a lot of money to be made investing in private equities. Over the last 30 years, stocks and bonds have provided an annual real return of more than 9 percent, and there is every reason to think they will continue to produce substantial gains over and above inflation. Americans used to think it was risky to buy stocks. Many of them have come to see that the bigger risk is not buying stocks.

Social Security was a great deal for retirees in the days when the number of people paying in was large and the number taking out was small. But those days are gone. Future retirees can expect only a 1 or 2 percent return on the money they contribute in payroll taxes, if that. Many young people think they would do just as well shipping their money to the municipal landfill, since they expect Social Security to collapse long before they reach the golden years.

Even former Social Security commissioner Robert Ball no longer claims that workers will be fairly rewarded when they retire or defends the status quo. "Why should the trust fund earn just one-third as much as common stocks?" he asks.

But Ball, who is on an advisory council set up to evaluate the options for Social Security, doesn't want to let workers invest their money in equities. He wants the government to do it for them. The trust fund, which now buys Treasury bills with its surplus revenues, would buy stocks instead.

Huh? The rest of the world has abandoned socialism, and the United States is supposed to embrace it? The trust fund, keep in mind, is expected to grow to $2.7 trillion by 2020. "With that, the government could buy every Fortune 500 company in America," says Michael Tanner, director of the Social Security Privatization Project at the Cato Institute in Washington.

With ownership, of course, comes control. If the trust fund is allowed to acquire a substantial share of the stock of corporations, politicians will suddenly find all sorts of reasons to interfere in how they're run.

Unlike most shareholders, who want only to maximize their return, elected officials and bureaucrats are likely to care far more about a political agenda--punishing tobacco or firearms companies, spurning investment in politically incorrect countries, demanding that workers be paid higher wages, preventing plant closings or subcontracting needed to enhance the company's profits, and so on.

The federal government would soon have a major say in corporate decisions that ought to be dictated entirely by market forces--by the free interplay of producers and consumers responding to supply and demand. Producers, consumers, other shareholders and the economy in general would suffer. So, incidentally, would Social Security recipients. Government ownership of companies has been a disaster everywhere it's been tried. We don't need to run the experiment again.

Luckily, we don't have to resort to the back-door nationalization of every major company in America just to improve the retirement picture for millions of working Americans. There is a far superior option--letting individuals put a portion of their payroll taxes into private accounts and invest the money themselves. Contributions would accumulate and earn high returns. Investment decisions would be made by individual choice, not political dictates.

If they want to avoid, say, tobacco stocks or companies that shift jobs overseas, they would be free to do that, if they're prepared to sacrifice some returns. But people who feel differently wouldn't have to go along.

More important, the private sector wouldn't have to jump to do the bidding of politicians who know little and care less about satisfying consumers. Social Security reform should be about enriching and empowering individuals, not expanding the government.